Algorithms Are the Engine of Digitalization

IN Dynamic Pricing — 06 August, 2015

At the beginning of July, we held our fourth Big Data & Analytics Congress (we call it the Datalympics), where participants learned how to better master digital change. The focus was on how companies can drive their business-process optimization, for example using automated materials planning, Industry 4.0, and dynamic pricing.

In this blogpost, I’d like to go into dynamic pricing in detail. Retail trade is one industry sector that’s coming under increasing pressure from digitalization, but where little thought is being given to how to make use of predictive applications. And this is despite the fact that consumers are now using digital technologies in their everyday lives − they shop digitally and compare prices on mobile devices. According to the latest study by Deloitte, “Navigating the New Digital Divide,” digitally influenced sales in brick-and-mortar stores are already at about 126 billion euros (about $138 billion).

And yet, over the past few years a chasm has opened between digital buying behavior and the reality at brick-and-mortar stores. Did you know that half of the typical apps on an iPhone are predictive? Consumers are already open to digital innovation, so why are businesses responding so hesitantly? As the saying goes, “he who hesitates is lost.” Valuable opportunities and the potential for boosts in sales are being tossed away. But with artificial intelligence, online retailers can optimize their prices automatically.

With the launch of our latest SaaS solution, Forward Pricing, at the Datalympics Congress, we not only give e-commerce the opportunity to set the optimal price for an article, we also allow these businesses to see and understand the effects of price changes on sales. The analysis includes both internal sales figures and external data — e.g. weather data, vacations, school holidays, and competitors' prices. Forward Pricing measures and continually monitors reactions to price adjustments by analyzing the interactions between price changes and continuous changes in demand. We thus give businesses the tools to be able to automatically adapt their prices, optimizing sales and profits as a result.

You’re probably wondering whether the much-heralded cash cow big data is really all it’s cracked up to be. Is it worth investing in? Hopes are high in Germany, for example, that the digital transformation will make the country a more attractive place to do business. One thing is clear: A lot of companies just need to get started!

A recent BARC study entitled “Big Data Use Cases 2015 − Getting Real on Data Monetization” shows that businesses profit from big data, and that sooner or later, big data will arrive.

TARGIT in THE BI Survey 15

The companies surveyed see clear advantages in cost minimization and rising sales.

But let's let the “bare facts” speak for themselves: Companies that have started using big data solutions say that their expectations have been met or even exceeded. Factors they found particularly important were that big data analyses allowed them to process large quantities (57% of those surveyed), of heterogeneously structured data (50%), and that they were able to create profit-making analyses (55%), as well as accurate forecasts (51%). Those surveyed reported that the insight they gained supported them in their strategic decision-making, the control of operative processes, and the analysis of customer behavior. What’s more, sales increased by up to 8% and costs decreased by up to 10% thanks to big data.

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Software solutions are just one building block of a corporate strategy − but an important one. There need to be more intensive strategic discussions about changing business processes, and in the process of digital transformation, employees have to be made much more aware that there is value in all data − value that can be an important factor in their business processes. Virtual value isn’t tangible, but an understanding of the real transferrable value of digital information should be put at the forefront and be the focus of corporate strategy. Businesses invest too little in training, innovation and strategic partnerships, and in the coming years, the finance departments, controllers, and CFOs will have to tackle this topic with more intensity. Only those who optimally combine utilizing this wealth of data and the right IT solutions can profit from digitalization.

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Uwe Weiss Uwe Weiss

CEO , is the visionary at Blue Yonder . His aim is to bring together the top class in Data Science and Enterprise software in an international market leader .